Autumn survey by German Investment Funds Association BVI: investment funds sector increases pace of digital transformation
- Administration most strongly impacted by new technologies
- Sector plans to invest mainly in digitalisation of processes and updating of IT systems
- Changes to portfolio management also expected to come from big data, algorithms and artificial intelligence
New technologies such as blockchain, big data, artificial intelligence and cloud computing pose great challenges for the investment funds sector. The main focus with regard to technology is on the digitalisation of processes (72 percent) and the updating of IT systems (63 percent). Forty percent of companies cite protection against cyber attacks as the main focus of their investment. Robo advice is not given as much consideration: only a quarter of those surveyed plan to invest in automated asset management. These were some of the findings of a survey of the senior management of all BVI member companies in December 2018. Altogether 345 decisionmakers took part in the survey, representing around EUR 3 trillion in fund assets.
Investment companies believe the impact of disruptive technologies will be felt most strongly in the area of administration (56 percent), while portfolio management (37 percent) and sales and distribution (36 percent) will be less affected. Of particular relevance, apart from the automation of processes, is the removal of intermediaries from the value chain. Blockchain, or distributed ledger technologies – the subject of much discussion in recent years – and digital transformation are not seen as drivers of growth in the sector per se, but the rationalisation of processes is expected to result in considerable improvements in efficiency and cost savings within the sector, for instance in dealing with increased compliance and reporting requirements. Survey participants expect the greatest change in portfolio management from the use of big data (54 percent), algorithms (53 percent) and artificial intelligence (51 percent).
Thomas Richter, Chief Executive Officer of BVI, commented: ‘The investment funds sector will see radical change as a result of digital transformation. The use of blockchain, big data, artificial intelligence and cloud computing is currently impeded by regulatory and practical constraints. For instance, in order to issue negotiable instruments via blockchain, Germany would have to adapt its company law and do away with paper certificates.’
For digital issuing of securities by way of token securitisation, securities legislation would have to be harmonised at European Union level. It is currently too fragmented. Also, there are no standards or rules for the safe custody of digital securities. To enable such securities to be held by custodians, the issuing of digital identification numbers is necessary. To prevent fraud and theft, token trading, all stakeholders and trading and settlement platforms would also have to be subject to relevant regulations, such as MiFID II and the European Union’s Market Abuse Regulation and Central Securities Depositories Regulation. BVI is therefore calling for a stable legal framework to ensure that the sector will be able to issue, buy and settle digital securities legally in the future.
What is essential to achieve this is high-capacity, state-of-the-art IT infrastructure. The survey found that the investment funds sector is accordingly investing large amounts into its IT systems. In 2018, 84 percent of survey participants were planning to increase investments in their IT infrastructure. In 2019 again 73 percent plan to do so. This expansion also means an increase in the need for qualified staff. Of those surveyed, 37 percent expect an increase in the number of IT-related jobs in the sector in 2019.